Case Number: 21

Case Mnemonic: Sprat

Case Name: Spratly Islands Dispute

Draft Author: May, 1997

1. Abstract

The Spratly Islands of the South China Sea are a potential
tinder box in the region. Approximately 44 of the 51 small islands and reefs are
claimed or occupied by China, the Philippines, Vietnam, Taiwan, Malaysia and
Brunei. The conflict is the result of overlapping sovereignty claims to various
Spratly Islands thought to possess substantial natural resources -- chiefly oil,
natural gas, and seafood. Disputes have been propelled by an aggressive China,
eager to meet growing energy demands that outstrip its supply capability.
Overlapping claims resulted in several military incidents since 1974 and in
several countries awarding foreign companies exploration rights in the same area
of the South China Sea. Regional nation-states not directly involved in the
Spratly disputes became concerned about regional stability and established a
regional forum to discuss the peaceful resolution of the disputes. Sovereignty
and exploration disputes were thought to be resolved with the drafting of
ASEAN's 1992 declaration which committed members to resolve disputes peacefully
and to consider joint exploration of the territory. Military aggression and
exploration endeavors conducted by China since 1992, however, have brought into
question the validity of the 1992 joint declaration and raises the question of
what long-term, peaceful solution could prevent the region from erupting into a
continuum of military incidents over sovereignty rights to the natural
resource-rich Spratly Islands.

2. Description

The Spratly Islands of the South China Sea are a
potential tinder box in the region. Approximately 44 of the 51 small islands and
reefs are claimed or occupied by China, the Philippines, Vietnam, Taiwan,
Malaysia and Brunei. The conflict is the result of overlapping sovereignty
claims to various Spratly Islands thought to possess substantial natural
resources --chiefly oil, natural gas, and seafood. Disputes have been propelled
by an aggressive China, eager to meet growing energy demands that outstrip its
supply capability. Overlapping claims resulted in several military incidents
since 1974 and in several countries awarding foreign companies exploration
rights in the same area of the South China Sea. Regional nation-states not
directly involved in the Spratly disputes became concerned about regional
stability and established a regional forum to discuss the peaceful resolution of
the disputes. Sovereignty and exploration disputes were thought to be resolved
with the drafting of ASEAN's 1992 declaration which committed members to resolve
disputes peacefully and to consider joint exploration of the territory. Military
aggression and exploration endeavors conducted by China since 1992, however,
have brought into question the validity of the 1992 joint declaration and raises
the question of what long-term, peaceful solution could prevent the region from
erupting into a continuum of military incidents over sovereignty rights to the
natural resource-rich Spratly Islands.

Claims to various islands of the archipelago began in the 1930s. Since the
1950s, the involved claimants have developed 29 oil fields and 4 gas fields in
the Spratly region.(1) China's rising energy demands, decreasing ability to meet
demand growth with domestic energy sources, and continued reliance on oil have
propelled China to look to alternative energy sources -- in particular the
relatively untapped South China Sea in general, and the Spratly Islands in
particular.

According to Kent Calder, China's energy balance of trade has dramatically
deteriorated since the early 1990s, causing China to become a net importer of
oil for the first time in over 25 years.(2) Dependence on imported oil is likely
to continue, given its low per capita energy consumption rate -- 40% of the
world average. Unless China can find a way of coping with the high start-up
costs, waste products and safety concerns affiliated with the implementation of
nuclear energy, oil will remain one of China's leading energy sources for the
mid-to-long term. (3)

3. Duration: 1992 to now

4. Location

The Spratly Islands consist of 100 - 230 islets, coral reefs
and sea mounts (tablemounts).(4) Despite the fact that the archipelago is spread
over 250,000 sq km of sea space, the total land mass of the Spratly Islands is a
mere 5 sq km. The land is not arable, does not support permanent crops, and has
no meadows, pastures or forests.(5) Furthermore, the Spratly Islands have not
been occupied by humans until recently. Countries with territorial claims use
military means --airstrips and armed forces -- to reinforce their claims.(6)

The Spratly Islands are situated in the South China Sea -- one of the largest
continental shelves in the world. Typically, continental shelves are abundant in
resources such as oil, natural gas, minerals, and seafood. According to James
Kiras, a contributing editor of the Peacekeeping & International
Relations journal, one study conducted by China estimated oil reserves in
the South China Sea to be larger than Kuwait's present reserves.(7)

Oil and natural gas reserves in the Spratly region are estimated at 17.7
billion tons; Kuwait's reserves amount to 13 billion tons.(8) The Spratly
reserves place it as the fourth largest reserve bed worldwide.

You can also visit the CIA World
Factbook site for descriptive information on the Spratly Islands' ecology.

Continent: Asia

Region: East Asia

Country: China

5. Actors: China, Vietnam, Philippines, Malaysia

China:

claims all islands in the Spratly region. According to Marcus Hall's
"Trouble Brewing in the South China Sea" assessment, China entered the dispute
in three phases.(9) The first phase encompassed China's claim to the Paracel
Islands (which are north of the Spratly Islands) in the 1950s. The second
phase took place in 1974, when China seized the Paracel Islands from Vietnam.
The third phase began on 14 March 1988, with China's military engagement with
Vietnamese forces over the removal of China's flag from a newly claimed shoal.
The military clash resulted in China gaining possession of 6 islands in the
Spratly region.

China's claim to all islands in the Spratly archipelago stems from its
historical presence in the region, dating as far back as the Han dynasty of
the 2nd century, BC.(10) According to Marcus Hall's evaluation, China's
historical claim is dubious and neglects similar historical claims by Taiwan,
Vietnam and Malaysia.(11) Moreover, China's historical interpretation of its
sovereignty rights ignores current international law.

The
Philippines:

claim approximately 60 of islands in the Spratly region. Joint exploration
with Royal Dutch/Shell Group and Alcorn International near the Palawan Island
will raise the Philippines annual oil production from the 3,000 b/d produced
in 1991 from 7 wells in the South China Sea.(12)

Vietnam:

claims part of islands in the Spratly region. Vietnam's only oil well in
production as of 1991 is the White Tiger field, 400 km west of the Crestone
block. In 1992, however, Vietnam hastened leasing to foreign exploration.(13)

Taiwan:

claims all islands in the Spratly region. The Spratly Islands are
strategically important to Taiwan for two reasons: (1) important shipping
lanes pass through waters surrounding the Spratly Islands; and, (2) the South
China Sea, in general, is fish abundant. Thus, Taiwan feels compelled to
protect its interests.(14)

Malaysia:

is the earliest oil operator in the sea and claims 3 islands and 4 rock
groups in the Spratly region. As of 1992, Malaysia was running 90 oil-
producing wells, with $210 million planned for further development between
1992 and 1995.(15)

Brunei:

claims the Louisa Reef in the Spratly region, located adjacent to its
coastline. Brunei became an active player in the Spratly disputes only within
recent years. Production of its 9 oil fields in the South China Sea hovers
around 143,000 b/d.(16)

Indirect Actors:

the
United States:

The United States could become involved on two fronts -- commercial and
military. U.S. businesses participating in off-shore exploration in the
disputed islands have a commercial stake in how inter-state tension and
disputed claims are resolved. On the military side, the United States has a
mutual defense pact with the Philippines, yet analysts indicate the Spratly
disputes are unlikely to invoke the pact.(17) The United States would,
however, likely take action if maritime activity was restricted in a manner
inconsistent with international law.

Japan:

Like the United States, Japan has a vested interest in the resolution of
the Spratly disputes. The disputed region is located near Japan's principal
oil imports' shipping lanes. Moreover, Japanese companies are involved in some
of the exploration endeavors in the disputed territory.

ASEAN
members:

ASEAN members are concerned that the U.S. withdrawal of military troops
from the region and the Soviet Union's disintegration will leave the region
without a counterbalance to China.(18) Although many western analysts view
China's military capabilities as obsolete, China's military might in the ASEAN
region is still superior, both quantitatively and qualitatively.

The following table depicts the military strength of each of
the three main actors in the Spratly disputes -- China, Vietnam and the
Philippines.

6. Type of Environmental Problem: Resource

7. Type of Habitat: Ocean

8. Act and Harm Sites:

9. Type of Conflict: Interstate

Disputes in the Spratly Islands have
revolved around overlapping territorial claims, particularly where potential gas
and oil reserves are involved. The Spratly Islands are also strategically
situated within the waterway servicing Japan with 70% of its imports from the
Middle East.(19)

Disputes have become more frequent in recent years, in part the result of
burgeoning energy demands in China. In an article written by Japanese Professor,
Shigeo Hiramatsu, China's inadequate domestic oil-refinery and extraction
capabilities inhibits China's ability to increase energy production to meet
rising demands.(20) Consequently, China must either import more oil and gas,
improve its production capabilities, or undertake joint exploration of off-
shore areas to develop potential oil and gas fields. Unfortunately, the third
option will likely entail exploration in the potentially oil-and-gas-rich
Spratly Islands, where territorial disputes are hotly contested.

Economic exploration endeavors appear to ignite the tenuous stability in the
Spratly region. China granted oil exploration rights to foreign oil firms in
territories with overlapping claims. In 1992, China National Offshore Oil Corp
signed a joint exploration contract with Crestone Energy Corp. for a disputed
area in the Spratly Islands. The Sino-U.S. contract infuriated Vietnam, who
claimed the contract location is part of its exclusive economic zone. The
situation was further aggravated in 1996, when Vietnam forged ahead with joint
exploration plans in Spratly waters also claimed by China. Vietnam awarded
exploration rights to Conoco in 1996, infuriating China. China claims that the
area covered in the 1996 Vietnam-Conoco deal overlaps with the block awarded to
Crestone Energy by China in 1992.(21)

The conflict is further exacerbated by foreign firms willing to undertake
riskier oil development projects in Asia. The foreign oil firms are looking to
profit from the current energy boom in Asia as well as to find replacement
reserves for those in the United States and the North Sea where production
approaches their peak.(22)

Aside from granting foreign firms exploration rights in disputed waters and
conducting military exercises in the Spratly area, China has also committed
itself to the build-up of its navy and air force. The Financial Times
reported in August of 1996 that China planned to purchase advanced navy radar
from the British. This radar would improve warning signals to China of
'impending' attacks as well as facilitate naval task group deployment in the
South China Sea.(23) The islands are particularly strategic to China.

10. Level of Conflict: Threat

1930s

France first occupied various Spratly islands.

1934-1944

During WWII, Japan displaced the French and occupied the Spratly Islands,
using the islands as a submarine base. After the war, neither the French nor
the Japanese returned to the islands.

1946

Kuomintang forces took possession of the Itu Aba island -- the largest
Spratly island.

1968

The Philippines take control of 3 islands.

1973

South Vietnam possessed 5 islands in the Spratlys

1974

China disregards territorial claims by South Vietnam, and occupies the
Paracel Islands lying north of the Spratly Islands. U.S. and South Vietnam
naval forces clash over island ownership.

1978

The Philippines extend an official claim to islands east of the Spratlys,
naming them the Freedom Islands. China removes 6 Spratly atolls from Vietnam's
possession.

1979

Malaysia claims its first Spratly island, indicating that the island is
part of Malaysia's continental shelf.

1988

China and Vietnam become military engaged over Johnson Reef. China retains
occupation of the reef. By April, Vietnam expands claims to include 15
additional reefs. China occupies 6 isles.

1989

International outrage at the Tiananmen Square incident in China calmed
China's aggression in the South China Sea, in an attempt to further avoid
infuriating international opinion.

1992

The Manila declaration was drafted and claimats agreed to peaceful
resolution of the disputes.

1992

On 25 February 1992, China passed the "Territorial Sea and Contiguous
Zones" Law, laying claim to all Spratly islands, as well as several other
archipelagos.

1992

In May, China National Offshore Oil Corp. signed a joint exploration
contract with Crestone Energy Corp. for the 25,1255 sq km Wan'an Bei-21 block
in the Spratly Islands.(28) Exploration is set to begin in 1994. Vietnam
vehemently opposes this contract.

1992

In July, China occupied Da Lac Reef, serving as its first military
presence since the 1988 clash with Vietnam.

1992

In September, China drills on the Vietnamese side of the Gulf of Tonkin
median line, violating the 1972 agreement not to drill in disputed waters.

1994

In November, Exxon concludes a US$35 billions gas field exploration deal
in the area north of Natuna Island, a region partly claimed by China. Vietnam
signs an exploration deal with Mobil in Vietnam's EEZ, but in waters also
claimed by China.

1995

In February, China occupied the Philippine-claimed Mischief Reef in the
Spratly Islands.

Vietnam's PetroVietnam signed a deal with the U.S.-based Conoco oil
company to explore waters 400 km southeast of Ho Chi Minh CIty.

1997

In March, China allegedly began operating the Kan Tan III oil rig in an
area north of the Spratly Islands, but within Vietnam's EEZ.

How the
events in the Spratly Islands unfold have far-reaching implications. The
resolution of Spratly-related disputes will not only impact the distribution of
sovereignty and exploration rights, but also implicate how future economic and
security arrangements will develop in southeast Asia.

Joint Development:A 1992 ASEAN declaration, endorsed by China,
stipulated that Spratly-related territorial disputes would be resolved by
peaceful means. China, however, proceeded with foreign company contracts to
explore areas with overlapping sovereignty claims in 1994, and in 1995 destroyed
Philippino military structures and erected Chinese concrete markers on the
Philippine-claimed Mischief Reef. These antagonistic moves by China, virtually
renders the 1992 joint declaration null and void.

The UN Convention on the Law of the Sea and the World Court:Issues
pertaining to the territorial control of sea waters have long been the subject
of international law. Although there are some generally accepted rules of
maritime shipping and the extension of a state's territorial limits, emphasis in
recent years on potential undeveloped sea resources has generated a number of
inter-state disputes around the globe (29) Undersea oil exploration has been
particularly contentious. The former Soviet Union in 1960 extended by 12 miles,
its territorial waters. Other countries claim a 200-mile off-shore territorial
zone. To resolve disputes and regulate issues, the United Nations drafted the
Law of the Sea Convention (UNCLOS) in 1982. The UNCLOS is aimed at establishing
coastal boundaries, erecting an International Seabed Authority to regulate
seabed exploration not within territorial claims, and to distribute revenue from
regulated exploration. As of 1990, only 42 of the required 60 ratifications to
make the Convention effective were completed.

Article 56 of the treaty outlines parameters for the establishment of a
country's Exclusive Economic Zone (EEZ), which extends 200 nautical miles from
the country's coastline. Article 56 gives sovereign rights for exploration,
exploitation, conservation, and resource management of living and non-living
natural resources of waters in the country's EEZ. The UNCLOS further attempts to
exclude rocks incapable of sustaining human habitation. The problem, however,
stems from the country's right to define the natural feature as a rock or an
island.(30)

Aside from defining an EEZ, the UNCLOS also contains parameters for a
country's continental shelf in article 77. The continental shelf is defined as
the underwater portion of the country's coastal land mass -- including the sea
bed as well as the subsoil of the shelf. The deep ocean floor, however, is not
considered part of a country's continental shelf.(31)

The third important part of the UNCLOS is Part VI, which justifies claims by
Brunei, Malaysia and the Philippines. Justification is based on proximity, not
history; hence, China's and Taiwan's historical claims would not likely win
arbitrated cases.

In May of 1996, China's parliament passed a resolution to approve the Law of
the Sea UN Convention. Signing onto the Convention would enable China to extend
its exclusive economic sea zone to 340 km.(32) Yet, it remains unknown whether
China will follow through with its pledge to become a signatory.

Aside from the UNCLOS, the World Court (International Court of Justice) could
also serve as a conduit to resolve the Spratly- related territorial disputes. In
order for the World Court to hear a case, however, all disputants must be
willing to permit the Court to hear the case and render a binding decision.
James Kiras believes that China will be unwilling to take this conflict
resolution route, given that China claims rights to a sea area extending 1,000
nautical miles south of Hong Kong. Kiras cites four motives driving China's
resistance to international arbitration: (1) land-based resource scarcity; (2)
population growth; (3) aspirations to become a regional naval power; and, (4)
territorial claims far exceed anything established in existing international
maritime law.(33)

Consultative or Semiofficial Intergovernmental Forum:Ali Alatas,
the Indonesian Foreign Minister, suggested that political conflicts in the
region need to be diffused by a consultative or semiofficial intergovernmental
forum.(34) China, however, has continued to acquire territory by means of force
rather than through diplomatic negotiations. This was evident in China's
acquisition of the Paracel Islands from South Vietnam in 1974, and again in 1988
when China clashed with Vietnam over Johnson Reef in the Spratly Islands. See Time Line for a
list of conflicts and disputes. According to a 1995 article from The
Economist, China has resisted suggestions to expand the purview of ASEAN's
Regional Forum (ARF) to include Spratly-related disputes. China emphasizes that
the forum is to exchange views not to negotiate.(35)

A senior fellow with the Programme on International Economics and Politics,
Mark Valencia, envisions a cooperative regime, whereby China and Taiwan lay
aside their 'historic' claim to the region for a 51% share of the 'multilateral
Spratly Development Authority' (SDA).(36) The SDA would be responsible for
managing resource exploration and exploitation. The Spratly region would become
demilitarized and authority disputes set aside. Mr. Valencia admits that the
cooperative regime is not perfect, yet asserts that this type of arrangement
should be considered. Otherwise, inaction and gridlock may inhibit the
development of a collective security agreement for the region.

Asian Executives Poll:In a 7 November 1996 poll, 47.6% of Asian
business leaders indicated the Philippines had the strongest claim to the
Spratly Islands. China accounted for 24.1% of the vote, while Vietnam claimed
13.9% of the vote, Malaysia picked up 9.6%, Taiwan carried 3.6%, and Brunei
captured 1.2% of the business leaders' votes.(37)

11. Fatality Level of Dispute: 0

12. Environment-Conflict Link and Dynamics: Direct

To date, military
confrontation has been limited and the number of casualties have been low. Yet,
failure to peacefully resolve sovereignty disputes places the region in a
fragile state of stability. Exploration endeavors undertaken by China in March
1997 increase the uncertainty surrounding China's willingness to cooperate on
sovereignty disputes in the South China Sea and raise the question of what are
China's larger, regional intentions. In a 1996 analysis of China's military
modernization program, author Felix Chang identifies control over the Spratly
Islands as a long- term objective of China. According to Chang, China will
refrain from igniting a full-fledged military assault until it is certain that
its military forces are strong enough to dominate the forces of others.(24)

China has provoked, however, limited military clashes in pursuit of exerting
control in the region. According to Kevin Muehring's Institutional
Investor article, China's military exercises in the Taiwan Strait in 1996
and its aggressive behavior in the Spratly Islands may be indicative of China's
larger, long-term regional ambitions.(25) Thus, China's actions in the Spratly
Islands may form one part of China's plan to exert greater control in the larger
East/Southeast Asian region.

Although China is unquestionably the most active claimant in building its
military, the other actors are preparing for a possible armed clash. In 1990,
Malaysia announced the erection of a submarine base and proposed a free trade
port on Labuan Island, situated near the Spratly Islands. Taiwan asserted the
right to sea and air patrols over its Spratly claims in 1992. Moreover, the
Philippines is building up its naval forces. Yet, China's build-up endeavors
surpass all other parties' efforts. Defense spending has been rising as a
percentage of total budget expenditures and naval and air force fleets have been
targeted for extensive modernization.(27)

Natural Resources (+)----> CONFLICT <---- (+) Territory
Demand

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Cultural Perception (Differences +)

13. Level of Strategic Interest: Regional

Exploration and territorial
claims of the Spratly Islands did not get underway until the 1930s. In fact,
prior to the 1950s, the Spratly Islands were largely regarded as a navigational
hazard, not as a potential natural resource reservoir.